What is a Cost-Plus Contract?

Under a cost-plus arrangement, the owner agrees to pay the contractor the actual costs of construction of the project plus a predetermined fee, which may be in the form of a stipulated amount or a percentage of the construction costs.

In general, cost-plus work is an open book process where bills from the contractor include documentation of all hard costs. This would include invoices for materials and subcontractors, as well as work hours and billing rates for direct labor supplied by the contractor. This is a trust-but-verify process to ensure that the contractor is keeping good records and billing responsibly

 

When is a cost-Plus contract used? 

Cost-Plus contracts are used for situations where the owner desires to involve a contractor in the design and pre-construction stages of the project. The contractor can provide valuable services such as a feasibility analysis, estimating, and value engineering to help the owner develop and maintain the program and scope of the project within the owner’s budget, schedule, or other constraints. A cost-plus contract may also be appropriate when the owner wants to commence preliminary phases of construction (i.e., sitework, underground utilities, foundations, exterior shell, etc.) in a fast-track process, but has not sufficiently completed the design for the rest of the project.